Closing the Donnelley J. Hill State Office Building and finding other office space Downtown for its 900 workers is the right thing to do for Tennessee taxpayers, Gov. Bill Haslam said in Memphis Tuesday.

A day after proposing to sell the 44-year-old landmark rather than overhaul it, Haslam said, "Our real estate advisers don't feel like it is smart for us to keep investing more dollars into that building, but it is our wholehearted intention to stay Downtown."

"It's one of those roles we have to play, where we have to look out for the state's taxpayers and say, 'Is it smart for us to have to keep renovating and maintaining and operating this building or to go somewhere that's a lot less expensive?'" added Haslam.

In a meeting with The Commercial Appeal editorial board, the former Knoxville mayor declared, "I would always argue an investment in downtowns is good."

Haslam was in Memphis touting highlights of a $32.6 billion budget proposal including funding for building renovations at University of Tennessee Health Science Center, a University of Memphis community health facility containing a new School of Nursing, and backing for a partnership between St. Jude Children's Research Hospital and UTHCS exploring childhood obesity and other critical public health issues.

"It's harder for me to see investing capital dollars somewhere where we don't necessarily have a strategic asset or a competitive advantage over someone else. But here I honestly think all three of these institutions are the core of what we're trying to do in this part of the state," Haslam said.

The state's plan to ditch the 11-story, 121,000-square-foot Hill building on Civic Center Plaza comes at a time when Downtown is bleeding office jobs. Pinnacle Airlines Corp. announced it's pulling about 500 office workers out of One Commerce Square and moving headquarters to Minneapolis this spring. Raymond James Financial trimmed the workforce at Morgan Keegan Tower after buying Memphis-based Morgan Keegan last year.

The losses are reversing hard-won gains in office occupancy over the past couple years, Downtown Memphis Commission president Paul Morris said.

Downtown has about 3.3 million square feet of Class A and B office space and had a 16.1 percent vacancy rate in the fourth quarter of 2012, according to CBRE Memphis.

Morris said the state's analysis of the Hill building seemed to reflect a suburban bias. The consultants' guidelines for new space would seemingly lead to a low-rise building with a large footprint, more likely to be found in the suburbs than Downtown, he said.

"The bottom line is, I'm very encouraged to hear the governor confirm his intention to leave all the workers Downtown," Morris said. "I look forward to helping the governor and his administration any way we can to ease the transition of the workers from one building to another."

"Our other priority is to repurpose the abandoned Hill office building, and we're going to need the state's help on that. If you abandon an office tower, if it's abandoned too long it becomes a blighted building. We can't afford another empty, blighted building," Morris said.